The Influence of Milton Friedman

July 31, 2002

Today (July 31) marks the 90th birthday of Milton Friedman, the most influential economist of the second half of the 20th century. Almost single-handedly, Friedman rejuvenated the free market among professional economists, after a long period in which planning and socialism held sway. The economic reforms of Ronald Reagan and Margaret Thatcher would not have been possible without the intellectual foundation he laid.

Many viewed the Great Depression as a failure of the free market and demanded government intervention to fix its perceived flaws.

John Maynard Keynes argued that governments could moderate or even eliminate business cycles by increasing the budget deficit to stimulate demand during downturns and raising taxes to reduce demand when inflation emerged.

However, Friedman's studies showed conclusively, contrary to Keynesian theory, that consumers did not change their buying habits automatically in response to changes in their disposable income.

And he showed that mistakes by the Federal Reserve were primarily responsible for the Great Depression, not capitalism.

He also argued that the free market is the only economic system consistent with a free society, and that it is vastly more effective at increasing wealth.

He took his ideas directly to the public, through a long-running Newsweek column and a popular television series and best-selling book, "Free to Choose." In addition, he made specific policy proposals. Friedman was the first to propose vouchers to allow private schools to compete with public schools. He also proposed a "negative" income tax to replace welfare, an idea that led to creation of the Earned Income Tax Credit.

Friedman was elected president of the American Economic Association in 1967 and received the Nobel Prize in Economics in 1976. He trained many students at the University of Chicago who carry on his work. Moreover, he has continued to write and speak with clarity and perceptiveness on current issues.